Colombia central bank seen holding rate for first time in seven months

Reuters Staff

2 Min Read

BOGOTA, Sept 29 (Reuters) - Colombia’s central bank is expected to hold the benchmark interest rate steady on Friday for the first time in seven months, taking time to gauge how much inflation is slowing and whether the economy needs more support.

Policymakers have been grappling for over two years with the twin pressures of a weak economy, caused by the global drop in oil prices, and inflation that last year more than doubled the bank’s 2-to-4 percent target range.

Twelve-month inflation fell to 3.87 percent last month.

In a recent Reuters poll, 15 of the 18 analysts surveyed projected the bank will maintain the lending rate at 5.25 percent, while the remaining three forecast a final cut this year to 5 percent.

The risk of a resurgence in inflation during the remainder of the year - which would put prices above the target range - is likely to tip the balance toward holding the rate steady even as the economy remains weak, analysts said.

“The evolution of food prices in September will not allow for another rate cut this year, though aggregate demand remains depressed,” said Wilson Tovar, economist at Bogota-based brokerage Acciones y Valores.

The government forecasts GDP growth of 2 percent for 2017 and 3 percent for 2018.

Analysts expect the pause to be temporary and cuts to resume next year, bringing the rate to 4.50 percent. The bank has already trimmed 225 basis points since December. (Reporting by Nelson Bocanegra; Writing by Helen Murphy; Editing by Dan Grebler)